New Focus on Middle Class — The America This Recovery Has Left Behind
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The economic recovery has been great for Wall Street bankers and other 1 percenters. Not so much for the American Middle Class.
That’s the conclusion of countless national surveys and studies — as well as the comments I’ve seen from you right here in Money and Markets. So it’s no surprise that President Obama is poised to focus on the plight of Middle America in his annual State of the Union speech tonight.
From reports I’ve seen, we can expect to hear about the following:
Tax hikes that total $320 billion over the next decade, mostly targeted at wealthier individuals.
Tax breaks that will total approximately $235 billion, mostly aimed at those who make more moderate incomes.
|Tonight, President Obama’s speech will focus on tax hikes on the wealthy and tax breaks for the middle class.|
To drill down a bit further, Obama’s plan would raise the capital gains tax rate to 28 percent from 23.8 percent at the high end of the income spectrum. Capital gains taxes would also apply to many more inherited assets. Banks with more than $50 billion in assets would also get hit with a new fee of 7 basis points — a move that could raise around $110 billion in tax revenue.
As for the cuts, Obama wants to institute a $500 tax credit for two-earner households in the middle of the income spectrum. The child tax credit would be tripled to $3,000, and its eligibility expanded to more middle-income earners.
Some have dubbed the suggested changes “Robin Hood-esque.” That’s because they would take more money from the rich and redistribute it to the poor. Obama’s team simply calls the approach “Middle Class Economics.”
Regardless of how you characterize them, though, these proposals are unlikely to make their way through a Republican-led Congress in their proposed format. Opposition is particularly intense over taxes that hit investment income. The idea there is that if you penalize investment, you’ll get less of it, hurting economic growth and job creation.
Personally, I’d like nothing more than to see Middle America get a bigger share of the economic pie. We’ve seen fairly healthy job growth in the last several quarters, but wages just haven’t kept up.
Higher health-care costs have offset a large chunk of the savings we’re seeing at the gas pump. Inflation in the cost of things like college tuition has put the squeeze on many of us. And rock-bottom interest rates mean we’re earning squat on our savings.
|“I’d like nothing more than to see Middle America get a bigger share of the economic pie.”|
Add it all up and you can see why politicians are starting to clamor for solutions! But do you think Obama’s suggestions make sense? Are these the kinds of policies that will truly help Middle America? Or will they make things even worse? What should be done — if anything — to boost wages and take-home pay for the average guy on the street?
The Money and Markets website is your best outlet for ideas — so please do weigh in right now!
|Our Readers Speak|
What happens when you put too much faith in global central bankers to get things “right?” And when you trust them to stick to their word? You get debacles like last week’s “Swiss Massacre!”
As Reader Donald L. said at the website: “The Swiss debacle should remind (but won’t) governments and investors of the dangers of trying to artificially manipulate markets and money. Lesson learned, until the next time.”
Reader Mark added to that train of thought, and also noted that this won’t be the first central bank shocker we’ll have to deal with as investors. His take:
“Everyone keeps referring to the SNB decision as a black swan event, but they are wrong. The black swan happened a few years back when they decided to peg the franc to the euro. It has just played out now that the SNB came back to their senses.
“How long will the public keep putting up with the central banks and their disastrous policies? Just wait until the Fed tries to unwind their mess. They are clueless how to unwind the QE addiction. My guess, more drugs will be coming. Lord have mercy on us all.”
Meanwhile, on oil, Reader Gary said we will have relatively low prices for a while … but that they won’t last beyond the next several months. His view: “I see oil prices remaining low for the next 8-12 months. President Obama once said that we can’t drill our way to lower gas prices. This appears to be untrue. Basic supply/demand from Econ 101 says otherwise.
“Fracking has a substantial upfront cost, and low ongoing cost. A typical well of this type lasts about two years. All existing wells will continue to produce, but new wells won’t come online. As they deplete themselves, oil prices should slowly rise.”
Finally, regarding the issue of income disparity, Reader Peter W. offered the following insights: “Where are increased wages and salaries aside for those in top management? Where is job security for most of the consumers who drive the economy? I’ve got news for the analysts. The top 1 percent do not drive the consumer economy.”
Certainly that’s the view the Obama administration is counting on to power its tax and spending policies through Congress. So we will have to see how the State of the Union speech resonates (or doesn’t resonate) on Main Street!
|Other Developments of the Day|
China’s economy grew “just” 7.3 percent in the fourth quarter of 2014. While that sounds like a lot by Western standards, it means China’s economy grew at the slowest rate last year than in any year since 1990. That’s one reason commodity prices have come under pressure recently, and a key reason the International Monetary Fund just downgraded its forecast for world growth in 2015.
Speaking of China, regulators cracked down on the use of margin accounts to invest in Chinese stocks over the weekend. That caused the Shanghai Composite index to plunge 7.7 percent to 3,116.35 in trading yesterday, when U.S. markets were closed. That was the worst one-day rout since June 2008 (in the depths of the global financial crisis).
Despite concerns about growth overseas, the Federal Reserve remains fairly sanguine about growth here at home. That’s the basic outline of a Wall Street Journal story from “Fed Whisperer” Jon Hilsenrath. The story suggests the Fed is still on track to start raising short-term rates this year, even as the timing of its first move remains a mystery.
Oil prices have been gyrating around in the mid-to-high-$40s over the past several days. But now it looks like even those who were “short” the oil market are coming around to my view — that the worst of the declines are likely over. One hedge fund investor quoted by the Journal called the declines “bloody nuts.”
Of course, the price decline is already causing major problems for well-paid energy sector workers. Oil services firm Baker Hughes (BHI, Weiss Ratings: B-) is laying off 7,000 workers, while competitor Schlumberger (SLB, Weiss Ratings: B) is handing out 9,000 pink slips.
So what do you think? Is China toast? Is oil cheap? Is the Fed crazy for even thinking about raising rates? Let me know at the website!
Until next time,